Explain how the labor market and the production function ...

[segrsyd]

Explain how the labor market and the production function determine potential GDP.
 
  What will be an ideal response?

Question 2

The infant industry argument is based on the idea of
 
  A) learning-by-doing.
  B) absolute productivity advantage.
  C) global monopoly.
  D) countervailing duties.

[aruss1303]

Answer to Question 1

The labor market determines the equilibrium quantity of labor. In other words, the amount of employment is determined by supply and demand in the labor market. The production function shows the amount of output, real GDP, that is produced for all different amounts of employment. Intuitively, the production function converts the amount of employment from the labor market into real GDP. If the labor market is in equilibrium, so that the level of employment is equal to full employment, then the amount of real GDP produced, determined from the production function is potential GDP.

Answer to Question 2

A

[segrsyd]

Excellent

[aliotak]

Thanks for the timely response, appreciate it